CGI Group profit doubles, bookings strong

Alastair Sharp

4 Min Read

TORONTO (Reuters) - CGI Group Inc (GIBa.TO), the Canadian computer services provider involved in last year’s botched rollout of the Obamacare U.S. health plan, said on Wednesday its quarterly profit more than doubled, driven by a 7 percent rise in revenue and strong European bookings, sending its shares higher.

Solid overseas demand, coupled with favorable currency gains, more than offset weakness in the U.S. market. CGI Group’s contract to manage the online U.S. health exchange program was not renewed after a bungled launch created a political crisis for U.S. President Barack Obama.

The company has had more growth in Europe than in North America recently following its 2012 purchase of Logica, a former British competitor.

“If you look at the bookings for the U.S., it was weak,” said Steven Li, an analyst at Raymond James. “The weakness was actually concentrated in U.S. federal, which is where all the healthcare exchanges contracts are.”

Li said fewer federal contracts were on offer in general, but for CGI Group specifically, “what happened with Obamacare didn’t help”.

On a call with analysts, CGI Chief Executive Officer Michael Roach said the complicated U.S. project was a hiccup that has been blown out of proportion.

“Clearly, some of the work around the health exchanges have temporarily had an impact on the business,” he said. “The reality on the ground versus the perception in the press, there’s a big gap there.”

He said CGI is still managing some state-based health exchanges and has been able to reset customer expectations and has already booked much of the cost of those projects, which could lead to a recovery in CGI’s U.S. margins in the second half.

The company generated C$350 million ($319 million) in cash flow from operations, excluding integration costs, in its fiscal second quarter, rebounding from a disappointing result in the previous quarter.

“The improvement in cash flow generation should go a long way to allay investor concerns regarding the cash production ability of Logica,” Canaccord Genuity analyst Maher Yaghi wrote in a note.

Shares in the company jumped 2.9 percent to C$39.18 in Wednesday trade on the Toronto Stock Exchange. The stock has risen around 7 percent since the start of the year.

Net profit in the second fiscal quarter rose to C$230.9 million, or 73 Canadian cents per share, from C$114.2 million, or 36 Canadian cents.

The company, which reports in Canadian dollars but receives revenue in a range of other currencies, has also been buoyed by a slip in the relative value of the Canadian currency.

Revenue rose 7 percent to $2.7 billion.

The company booked $2.9 billion in contract awards, with 40 percent reported as new business. Bookings are an indicator of future sales. The book-to-bill ratio was 105.4 percent.

Book-to-bill refers to the ratio of orders added to the company’s backlog versus finished work that can be billed to a client. Investors are keen to see the company get orders for more work than it finishes each quarter, reflecting growth.

CGI Group’s North American book-to-bill over the past 12 months was 98.8 percent, and it was 110.2 percent in Europe.

Just under 13 percent of CGI Group’s revenue stemmed from work it did for the U.S. federal government in the quarter, down from 13.9 percent a year earlier.